Urban Co-operative Banks (UCBs)
Urban Co-operative Banks (UCBs): Urban Co-operative Banks (UCBs) in India have played a significant role in providing financial services to urban and semi-urban areas. Four important initiatives to strengthen Urban Co-operative Banks (UCBs) have been taken by the government of India. The Urban Co-operative Banks (UCBs) are also important for UPSC Prelims Exam and UPSC Mains Exam (GS Paper 3- Indian Economy).
In order to fulfill Prime Minister Shri Narendra Modi’s vision of ‘Sahakar se Samridhi’ (Prosperity through Cooperation), significant initiatives have been implemented to enhance the strength of 1,514 Urban Co-operative Banks (UCBs) in India. Following extensive discussions between Union Home Minister and Minister of Cooperation Shri Amit Shah, Finance Minister Smt. Nirmala Sitharaman, and the Governor of the Reserve Bank of India (RBI), the RBI has officially announced these crucial measures to fortify Urban Co-operative Banks.
Following four steps has been taken by the government for strengthening the Urban Co-operative Banks (UCBs) in India-
In order to expand their business, Urban Cooperative Banks (UCBs) can now open new branches. UCBs can now open new branches up to 10% (maximum 5 branches) of the number of branches in the previous financial year without prior approval of RBI in their approved area of operation. In order to avail this facility, UCBs have to get the policy approved by their board and comply with the Financially Sound and Well Managed (FSWM) Norms.
UCBs can also do One Time Settlement at par with Commercial Banks. RBI has notified a framework governing this aspect for all regulated entities including Urban Co-operative Banks. Now co-operative banks through board-approved policies may provide process for technical write-off as well as settlement with borrowers. This has brought cooperative banks at par with other commercial banks now.
The Reserve Bank of India has decided to extend the timeline for UCBs to achieve Priority Sector Lending (PSL) targets by two years i.e. up to March 31,2026. Deadline of March 31, 2023 to achieve PSL target of 60% has now also been extended to March 31,2024.The excess deposits, if any, after clearing the shortfall of PSL during FY 2022-23 will also be refunded to UCB. Since UCB work in urban areas unlike commercial banks who have branches in rural areas as well, they were facing hardships on this score.
In order to meet the long pending demand of the cooperative sector for closer coordination and focused interaction, RBI has recently notified a nodal officer as well.
The above initiatives will further strengthen the Urban Co-operative Banks. Under the leadership of Prime Minister Shri Narendra Modi, the Ministry of Cooperation is committed to strengthen cooperatives and treat them at par with other forms of economic entities, both as beneficiaries and participants.
Urban Co-operative Banks (UCBs) have played a significant role in providing financial services and catering to the banking needs of urban and semi-urban areas in India. These banks operate on the co-operative principle and are established to promote thrift, self-help, and mutual assistance among their members.
UCBs are co-operative banks registered under the provisions of the Banking Regulation Act, 1949. They are formed with the primary objective of promoting the economic and social betterment of their members by providing banking services. These banks operate on the principle of “one member, one vote,” ensuring democratic control and participation of members in decision-making processes.
To address the limitations and enhance the effectiveness of UCBs in India, several measures can be considered:
Urban Co-operative Banks (UCBs) have a significant role to play in promoting financial inclusion and catering to the banking needs of urban and semi-urban areas in India. Despite certain limitations, UCBs can overcome challenges through strategic reforms and an adaptive approach. By strengthening their capital base, improving governance practices, adopting technology, and exploring collaboration opportunities, UCBs can enhance their effectiveness and contribute to the inclusive growth of the Indian banking sector.
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